Production to rise 3-4% this year; investments to fall to £10-11bn; some early field closures due to low oil are inevitable

Reuters/Aberdeen, Scotland

British oil and gas production is set to rise for the first time in 15 years this year as investment in more efficient technology pays off, the industry’s association said yesterday.
Britain’s oil and gas output has more than halved in the past 10 years due to easy-to-reach resources running low and a lack of investments in new areas.
This trend will likely reverse this year when production is expected to rise 3-4%, the first increase since Britain’s oil and gas output peaked in 2000, lobby group Oil & Gas UK said.
“Despite a very difficult business climate we are beginning to turn a corner,” Mike Tholen, economics director for Oil & Gas UK, told Reuters at the launch of the association’s yearly economic report.
“We are turning a corner in terms of the massive spend on North Sea fields pulling production up with it and on top of that we’re now beginning to get to terms with the cost base to find ways to make businesses cope in a much weaker environment.”
Preliminary government data showed oil and gas output over the first six months of this year rose 3% compared with 2014.
The increase comes after years of investments in new technologies that have meant new fields are run more efficiently.
However, the recent slump in oil prices has tightened oil companies’ purse strings and Oil & Gas UK expects capital expenditure to fall to £10-11bn ($16.91bn) this year, down from £14.7bn last year.
Low oil prices in combination with high operating costs in the North Sea have caused many operators to question the economic viability of continuing to run some of their oldest fields.
Maersk Oil said last month it would file for early decommissioning permission for its Janice field in the North Sea.
“Inevitably there will be some more fields decommissioned as a result of low prices,” Tholen said. “It’s a significant concern but it’s not the edge of the cliff.”
Bringing down operating costs in the North Sea is a key priority for operators and the British government which hopes a rebound in production will also increase tax revenue.
Since the start of oil production in the 1970s, the industry has paid over 330bn pounds in taxes to the British government.
Oil & Gas UK expects operating costs to fall by more than £2bn, or 22%, by the end of 2016 as companies work more efficiently.
Police officers stand guard outside the Grangemouth oil refinery in Scotland. Britain’s oil and gas output has more than halved in the past 10 years due to easy-to-reach resources running low and a lack of investments in new areas.